I'm in the middle of a long post discussing a very interesting new Kozinski opinion, but I'm running into difficulty because I don't know how check guarantee cards work. If you happen to know the answer to these questions, please answer them in the comments: When a bank issues a check guarantee card to a bank customer, is that usually understood as a line of credit to the customer for the amount of the checks? Or are check guarantee cards simply promises to check recipients that the issuing bank will cover the check amount if there are insufficient funds? How are check guarantee cards ordinarily reovoked -- by notifying the cutsomer, or by cancelling the check guarantee "account"? Anyone who happens to know the practices of the Nevada Federal Credit Union in 1987 is particularly welcome to comment. Thanks.

From here:
...
The feature assured merchants that a check would be covered by the issuing bank, even if there were insufficient funds in the account.
...
"With the increase in debit-card usage, along with more merchants having access to state-of-the art check verification systems, the need for a check-guarantee card has become outdated and no longer necessary in today's age of electronic transactions."
....
According to this article, about BofA in Nevada, BofA guaranteed up to $500.

One group with which check guarantee cards were popular was self-employed folks and small business owners who received a lot of small checks (e.g. people with housekeeping, dry cleaning, and day care businesses). Check guarantee cards helped them deal with two problems: first, the irregular, and sometimes unpredictable clearance of deposited checks, which led to imperfect information about their account balances; and second, that checking accounts (and checks) often featured business names, which limited their acceptance by some other businesses.

Like Judge Kozinski, I would therefore assess the service provided by the banks as a temporary credit service - guaranteeing that if a guarantee card holder miscalculated about cleared checks, the bank would extend a loan to cover his or her deficit until it was righted.

Also, my recollection is that it would have been atypical for a bank to notify a cardholder every time they were overdrawn -- but I think notice, rather than outright cancellation, would have been typical for an extended overdrawn period.

Orin, you have alluded to the main problem with the opinion. The case turns on the meaning of "credit" in the statute, and the state court holds, at least implicitly, that it does not mean what the Ninth thinks it means.

Although the bank agreed that they would waive their right to return the check so the merchant accepting it is not at risk, that is not the same as agreeing to make a loan. A bad check is still a bad check, and the card merely shifts the risk from the merchant to the bank.

On page 1252, the opinion says the Nevada Supreme Court misunderstood the crime of conviction. Sorry, it's a state statute, and it means what the state supreme court says it means, subject only to the due process limitation on retroactive changes in interpretation, a line of cases not mentioned.

As I read the opinion, they are granting federal habeas relief over a disagreement with the state courts on the meaning of state law. The Ninth has been spanked for this before, see, e.g., Estelle v. McGuire, 502 U.S. 62 (1991), and may be again.

The line of cases alluded to in my previous comment is Bouie v. City of Columbia, 378 U.S. 347 (1964) and Marks v. United States, 430 U.S. 188 (1977). If the opinion had analyzed this is a Bouie/Marks issue, it would have been much stronger.

The opinion states that the defendant had gone past the $500.00 limit, so the ground that she had remaining credit with the bank seems to be inappropriate.

The author seems to completely avoid the possibility that the card created what I see as a contractual relationship between the bank and the merchant. The card seems to give the same imprimatur as a certified check, in which case the bank is absolutely required to pay the check, but has recourse against the drawer.

Think of the situation where A uses a bad check to purchase a certified check from Bank and passes the certified check. Bank certified it, so must pay it, but has recourse against A; this situation is not much different and it's certainly not advancing credit. (Of course, no bank would DO this, but the reason they wouldn't do it is because they'd be on the hook.)

This strikes me as really, really wrong (of course, she's served 12 years which is punishment aplenty for this crime).

When a bank issues a check guarantee card to a bank customer, is that usually understood as a line of credit to the customer for the amount of the checks [o]r are check guarantee cards simply promises to check recipients that the issuing bank will cover the check amount if there are insufficient funds?

The latter - if it bounces the debt would be honored by the issuing institution; the customer would then owe to the institution.

Interestingly it looks like at least a few institutions required customers to waive all rights to stop a payment guaranteed by the card.

How are check guarantee cards ordinarily reovoked -- by notifying the cutsomer, or by cancelling the check guarantee "account"?

Not sure. Best I've found is a Pennsylvania bill that would require, for revoking check guarantee cards, "either notice given in person or notice given in writing to the person to whom the financial transaction card or personal identification code, or both, was issued. Notice of revocation shall be immediate when notice is given in person. Notice in writing shall be sent by registered or certified mail in the United States mail and shall be addressed to the person at his last address known to the issuer. Notice thus sent shall be prima facie evidence that the notice was duly received within seven days after the notice was mailed. If the address is not in the United States, Puerto Rico, the Virgin Islands, the Canal Zone or Canada, notice is presumed to have been received within ten days after the notice was mailed." (Link)

Of two mentions in UCC Rep Serv, only one actually talks about the cards. In re Singleton 37 B.R. 787 (Bkrtcy. D. Nev. 1984) held that a person who behaved similarly to this defendant had acted with sufficient intent to defraud that the underlying claim was nondischargeable.

The injury to property alleged was the conversion of the Bank's property-the limited credit line that provided the debtor with overdraft protection. The discussion above has shown that the debtor's actions were intentional and calculated to deprive the Bank of its property without just cause or excuse. The wrongfulness of these actions is demonstrated by their fraudulent nature.

It would seem that a charge of obtaining property by false pretenses would also be supported by those facts. This court DID treat the card as a line of credit, but recognized that it had a limit that the defendant abused. This seems more sensible than Judge Kozinski's opinion.

Although the bank agreed that they would waive their right to return the check so the merchant accepting it is not at risk, that is not the same as agreeing to make a loan. A bad check is still a bad check, and the card merely shifts the risk from the merchant to the bank.

...and John echoes him...

Think of the situation where A uses a bad check to purchase a certified check from Bank and passes the certified check. Bank certified it, so must pay it, but has recourse against A; this situation is not much different and it's certainly not advancing credit.

When a bank allows someone to withdraw money from an account based on funds that haven't cleared yet, it certainly is advancing credit. It's a very short term loan, of course -- just until the funds clear -- but it's definitely a loan. That's why banks make you wait several days to withdraw funds on a deposit.

When Party A agrees to pay money to Party B on behalf of Party C, with the expectation of collecting it from C later, that is a loan to C. It's not a "bad check." It's a guaranteed good one. (Ask the merchants: they got their money.) As Kozinski pointed out, she may well have defrauded the bank. But that's a different crime, and one the state (stupidly?) neglected to charge her with.

“a person . . . willfully, with an intent to defraud, draws
or passes a check or draft to obtain [money or property] . . .
when the person has insufficient money, property or credit
with the drawee of the instrument to pay it in full upon its presentation.” Nev. Rev. Stat. 205.130(1)

She knew she had drawn more than her $500.00 credit limit and met all of the elements of the statute. Kozinski is wrong (though the information may well have been defective as he noted because it failed to charge what she had actually done which was write checks in excess of her credit limit).

My hypo above is not an extension of credit (change it to counterfeit cash if it makes you feel better). If the checks she had written were less than the $500.00 overdraft, then it's just a claim by the bank against her. Since she intentionally overdrew the credit line she had the requisite intent; obtained property from the merchants; and did not have sufficient credit with the bank to cover the checks. That the bank decided to pay the checks does not mean that she didn't have the intent to defraud, which would be a fact question: did she know or reasonably believe that the bank would cover checks past her limit? If she didn't, then even if the bank paid the checks, she still violated the statute in question.

This case seems to be the flip side of the way the exclusionary rule has warped Fourth Amendment law; draconian sentences (5 life sentences for 5 bad checks!) push judges to extremes of statutory interpretation and jurisdictional reach.

That the bank decided to pay the checks does not mean that she didn't have the intent to defraud, which would be a fact question: did she know or reasonably believe that the bank would cover checks past her limit? If she didn't, then even if the bank paid the checks, she still violated the statute in question.

She had the guarantee card, so of course she reasonably believed -- and correctly so -- that the bank would cover the checks.

You have to focus on the definition of credit. Its not YOUR sense of what credit is or is not that is relevant; what is relevant is the definition in the Nevada statute.

Credit = "an arrangement or understanding with a person, firm, corporation, bank or depositary for the payment of a check or other instrument."

A check guarantee card creates an "understanding" that the "bank or depositary" will "pay" the "check." In addition to being an "understanding" that the bank will pay the check, it is also an "arrangement" by which it will do so. (Either arrangement or understanding will do.)

So, I think it is pretty unambigious that this is credit, as defined by the statute. Your definition or gut sense of whether this is credit or not is simply irrelevant. In fact, I have an opposite personal definition and a different gut sense than you. We must resolve this objectively with the text of the statute.

But if your still not persuaded, there is a canon of statutory interpretation that insists that ambiguities in statutes in criminal cases should be resolved in favor the defendant. I don't think this case IS ambigious. The definition of credit CLEARLY applies in this case. But if YOU think it is ambigious, the result should be in favor of the defendant.

Judge Kozinski makes an excellent point. The bank certainly was not stolen from; they KNEW when they voluntarily entered into this contract that they might have to extend credit in cases such as this.

In contrast, when you right a bad check that is not covered, you are essentially stealing. You are passing off something as though it has value to get something of value. It is a type of fraud. It is not a risk that the merchant is explicitly agreeing to, like the bank is when it guarantees these checks.

Now, the defendant may or may not have committed fraud in opening the account, but that is not what she was charged with. She never had a chance to defend herself against that charge; we don't know what the result would have been if she had been charged with that.

The question isn't how check guarantee cards work, it's how the issuing institution manages same. NFCU, by its own admission, honored checks above and beyond the $500 credit line they'd told Goldyn she had. She was never informed of any limit attached to the guarantee card and NFCU kept on honoring checks until it was too late. Seems like basic estoppel to me.

My day job is as a bank regulator in New England. These "bounce protection" plans, card-based or otherwise, are one of our major headaches. They're a major source of fee income, mainly for credit unions (our banks want nothing to do with these plans). The problem with these plans is the hoops the "issuer" must go through to AVOID triggering Truth in Lending/Regulation Z disclosures. The issuers want the fee income but don't want the duty to disclose to the consumer the cost of these plans. If the issuer were to advise the consumer of a hard limit on the $$ volume of checks that would be honored, that would trigger Reg Z disclosures. Since the goal is not to disclose, the issuer does not inform the consumer of any limit.

Here's the latest NCUA (National Credit Union Adminstration) issuance on bounce protection plans. Its cover page implies that it applies to 4 of the 5 federal "banking" agencies (the OTS held out from this one).

Thanks. But here's what I don't get: Why does honoring the check imply that it was a loan with the customer? What if the customer has no money in his account, has no plans to pay me, and wrote a $50,000 check? Or what if he wrote 100 checks for $500 each? Is that considered just an automatic loan, which is perfectly okay with the bank?

I have $500.00 in my account and an agreement with my bank that they will cover $500.00 in a line of credit. Given that the relationship between a bank and its depositor is a creditor-debtor relationship, this is not effectively different than if I had $1000.00 in my account and no overdraft protection.

I proceed to write five checks to merchants under the 500/500 hypothetical:

1: $200
2: $250
3: $150 (now I am into my line of credit)
4: $400 (now I have used up my $500.00 line of credit)
5: $200

In each case I received services or goods with FMV equal to the face value of the check.

The statutory definition of credit is "an arrangement or understanding with a person, firm, corporation, bank or depositary for the payment of a check or other instrument."

There is no question that absoultely applies to the $500.00 of overdraft credit to which I agreed with my depositor. When the depositor writes a check, the depositor expects that I will pay up to that amount, and reasonably so. The requisite intent to defraud is lacking.

Once the depositor writes the check that she has no a reasonable expectation that the bank will pay (she knows she has the $500.00 limit), she now has the requisite intent to defraud. There is NO effective "understanding or agreement" between her and the bank that the bank will pay anything greater than the $500.00 to which the bank agreed.

At this point, the elements of the crime are satisfied. We have a person who [1]willfully, with an intent to defraud [2] draws or passes a check or draft to obtain [money or property] . . . when the person has [3]insufficient money, property or credit with the drawee of the instrument to pay it in full upon its presentation. There is no understanding or agreement as to money past the $500.00 overdraft credit line (which *is* credit). All of the elements of the crime are satisfied, so the woman was properly convicted under this statute and the rule of leniety does not apply.

HOWEVER, the bank has given the depositor the means to deceive the merchant into believing that the bank WILL pay the check. As stated earlier, I consider this the equivalent of certifying the check. At the very least, it creates an expectation on the part of the merchant that the bank will pay the check, irrespective of whether there are sufficient funds in the account. The bank therefore believes it might be liable under Article 3 or under contract law for the amounts of the check and pays the merchant for the check that us not subject to any agreement or understanding.

Judge Kozinski confuses the concession of likely liability under Article 3 or contract with an extension of credit which does *not* meet the statutory definition he purports to apply.

The statute in question does not require that the merchants never be made whole by anyone (what if a third-party check service advised that they could take the check and had to eat it by reason of that advice, would that undo the fraud?). Civilly this creates a subrogation right in favor of the bank, but it doesn't affect the criminal charge at all. There is no reason that the charge could not be brought if the depositor later made the check good with a cash payment to the merchant or bank (though that would almost certainly speak to intent, unless the payment were expressly made to avoid prosecution. That gets us into the rather offensive idea of using the criminal law as a debt collection service, which many states do, but is nonetheless unsavory).

The problem seems to be in the statutory definition of credit. Ignoring the statute, the bank seems to be acting as a lender up to $500 and a surety beyind that, But the statute obliterates that distinction. If we take the statutory language seriously, Kozinski is right.

If the bank honors the check and does not prevent the funds from flowing to the payee, the bank has accepted all liability for payment on that check. If the check writer does not have sufficient funds to cover that check, the bank has instantly extended unsecured credit to that customer. The original payee is no longer a party to the transaction.

Banks (and credit unions) are required to file quarterly financial reports with the Federal and State banking agencies. The instructions for these reports require that the total overdraft positions (all accounts in a negative balance position, no matter the reason) be removed from "checking accounts" and be added to "unsecured loans."

JohnJenkins:

I fear that you're conflating pre-established overdraft lines of credit (interest-bearing and subject to Regulation Z) with today's "unadvised limit" bounce protection plans. Under the current methodology, there is no pre-existing written agreement to honor checks up to a certain negative account balance. Today's plans make no explicit promise of a credit amount (to do so would trigger Reg Z, the avoidance of which is the whole premise of these plans). Instead, a depositor keeps writing checks until their bank/credit union formally informs them in writing that they will no longer honor checks that create an overdraft. You must remember that the intent here is not to earn interest income on the imputed loan balance, it is to earn per-check fees for honoring checks presented without sufficient funds to clear. The depository institutions are making a business decision that they can earn more on the per-check fees than they'll lose in charging off uncollectible balances. The whole goal is never to tell the customer where the limit is.

The case was pretty wild. However, without seeing the agreement between the issuer and the customer, I cannot begin to conjecture what the obligations of the issuer and the Customer. The only generalization I can make about consumer credit law, having practiced a fair amount, is that there is a lot of it and often there will be three or four sources that apply to a given situation. State stautes are highly non-uniform. Regulatory regimes differ and there are the usual choice of law issues.

You've hit the sticky point in these plans. It's a per-check decision on the part of the depository institution. They're supposed to have internal policies to limit the inherent credit risk, but to tell a customer at what point it becomes too risky triggers Reg Z by implicitly establishing an advised line of credit. That said, no court will uphold a $100 billion check even if the bank had routinely let $1,000 overdrafts pass; it's just too great a disparity. A $5,000 check, or $10,000, though? Find the right judge and you'll win. It's exactly this indeterminacy, combined with the obvious intent of evading Reg Z, that drives us regulatory types crazy. Institutions involved in these programs are taking on massive contingent liabilities without any real forethought as to what their exposure might be; they're blinded by the potential fee income.

To stop this merry-go-round, we advise institutions to state in writing that as of the date of the letter, the existing overdraft position is a hard limit and that no checks will be honored beyond that limit. We also advise that doing so triggers Reg Z and that suitable disclosures must be made. Any remaining overdraft position needs to be converted into a documented note.

I was a banker long before I became a regulator and well learned the powers of State courts in equity if we (in the Court's mind) suddenly changed the rules of the game in mid-stream. Dishonoring checks without prior notice (assuming a long history of previously-honored NSF checks ala most bounce plans) is a losing play in most any State court.

I think your confusion lies in misunderstanding what a check "guarantee" card is. It is a guarantee to the store accepting the check, NOT to the bank customer. Banks used to do this so that reliable customers would not have problems having their checks accepted.

If you are thinking that the "guarantee" is one to pay until the consumer has reached a certain limit, you are incorrect. That wouldn't be much of a guarantee to the vendor, would it? After all, they have no way of knowing whether the customer has passed this limit or how close they are to that limit. Indeed, such a guarantee really wouldn't be worth much at all since a person in financial trouble who is going to right bad checks will easily burn through, say, $500 over their limit. Vendors would not be protected from such individuals. The guarantee is not based on the state of the account. Rather, the guarantee is typically one where the bank agrees to pay up to a certain amount NO MATTER WHAT, which is typically listed on the back of the check guarantee card. Say the amount listed is $200.00. As long as the check is for $200.00 or less, the bank will pay. As far as the vendor is concerned, the CONDITION of the customers bank account is TOTALLY irrelevant. If the check is less than $200.00, the bank will pay. (Exception: unless the customer is writing multiple checks for something that is really the same good or service. It wouldn't work to write 100 $200.00 checks for a new car. Such exceptions are irrelevant to this case.)

Why would a bank make such a guarantee? Aren't they putting themselves at risk from irresponsible customers. Yes they are. Supposedly, they would do a thorough check on the customer before taking such a risk. They take such a risk (1) because over the limit fees are a source of revenue and (2) it gave credit-worthy customers a way to seperate themselves from others. Irresponsible check writing customers exist and they are a cost no matter what. Either you lose business from reliable customers when you don't accept their checks or you take loses from bad check writers. Check guarantee cards offered a third way. The bank was in the best position to determine the reliability of the customer and would pay for any mistakes in judgment. It would be driven by competition to offer such a service. If a particular bank did not offer check guarantee cards, its reliable customers just might switch to a competitor that did.

Moving back to the case in question. As long as the check written by the defendant were less than the amount listed on the back of the check guarantee card, then the definition of "credit" applies.

The customer had made an "arrangement" whereby the "bank or depository" would "pay" the "check." There was NO risk to the vendors here as long as the amounts of the individual checks were below the amount listed on the back of the card.

I hope that clears things up. I see where you were confused. You were thinking that the guarantee was related to the condition of the bank account. (Well, there is one case where it MAY be related to the bank account. That is, if the account was CLOSED. That did not apply here. Of course, one wonders if a closed account is really relevant either; certainly vendors have no way of knowing that, but perhaps it is more justified that they bare that risk since it is much less common.)

Ned, this is an almost 20-year old case. The facts as recited by the court indicate that she knew there was a $500.00 limit. I'm applying my interpretation of the law to the facts recited by the court. It's my understanding that "check guarantee cards" are explicitly excluded from disclosure requirements of Reg Z, (See 12 CFR § 226.5a(3); 12 CFR § 226.12(c), n. 24) and I don't think it applies here, though I have no idea how it read in 1987.

For an explanation of check guarantee cards from a vendor who accepts checks perspective, check out this link.

This story might answer a question I brought up in my previous post. It turns out that check guarantee cards have expiration dates. Perhaps this means that the bank guaranteed the card as long it wasn't expired, whether or not the account the card was associated with was closed. I really don't know the answer to that question.

HOWEVER, the bank has given the depositor the means to deceive the merchant into believing that the bank WILL pay the check. As stated earlier, I consider this the equivalent of certifying the check.

John, I don't understand what you're trying to argue here. The depositor isn't "deceiving" the merchant into believing that the bank will pay the check; the bank will pay the check. No deceit.

You seem to be misled because you're focusing on what the bank labeled the arrangement, rather than looking at the substance of the arrangement. Based on the facts we have, when she wrote the check, she knew that the bank would pay it. That's the important point. We can presume the bank would try to collect later. That makes it credit. It doesn't matter if the bank called it credit or not.

Here's what I love about this discussion: Really smart and thoughtful people are reaching opposite conclusions. As much as I love Judge Kozinski and the Ninth Circuit, it seems odd that the panel would so quickly grant habeas relief, especially in light of the cases Kent Scheidegger cites, above. If reasonable minds can differ on an issue, is habeas (even in a pre-AEDPA world) proper?

Vorn, there is no requirement that the merchant be the one defrauded. Intending to defraud the bank is within this statute. I think that she had the requisite intent to defraud the merchants for reasons expressed supra. It's abundantly clear she had the intent to defraud the bank at the time she passed the checks (she knew she wasn't covered and had no intent to repay the bank).

I understand what the check guarantee card represents to the merchant. That's why I feel the bank was obligated to pay the merchants no matter what. I just don't think that gets the defendant off here. What the guarantee means to the merchant vis a vis the bank is irrelevant as to her intent to defraud and whether there was an actual agreement between her and the bank.

Consider the hypothetical where the bank negligently loses one of these cards. A person with a perfectly valid account at the bank (yes, this must be a stupid criminal, but bear with me) finds the card and uses it to write a check to a third party merchant. This person with no right to the card is in what I see as an equivalent position with a person who has used up her limit vis a vis the bank. The third party, however, has no idea as to either of their relationships with the bank. The third party knows that the card means that the bank has taken on the risk of fraud. That doesn't mean that there is no possibility of fraud.

The only way she gets off is because Kozinski believes that the $500.00 limit was not a real cap because a bank officer said that a customer could have gone through the limit unilaterally, but we don't have any cross of that witness, or the contract to compare it with (nice K hypo: would that testimony be parol evidence?). In any event, she had the requisite intent to defraud the *bank* at that point, and so still satisfies all of the elements of the statute. Just because there is a contract that shifts the risk from the merchant to the bank does not mean there was no fraud. Kozinski's interpretation of the statute implies requirements that are not there (i.e. one must intend to defraud the merchant, rather than have an intent to defraud someone in the transaction).

The bankruptcy court in the case I cited earlier certainly felt that the behavior was fraudulent as to the bank. So much so it refused to allow the debt to be discharged.

Reasonable minds CAN'T differ on this issue. Once you know that the check guarantee card is not based on the condition of the customer's account, but is based on the individual check being below a certain amount (usually listed on the back of the check guarantee card) then it is absolutely clear that the definition of "credit" applies.

Reasonable minds can only differ when they don't understand what is guaranteed by a check guarantee card.

I think Kozinski is right on the law, whether you like the result or not.

Leaving aside the Reg Z implications, which are much more applicable to modern-day bounce protection plans, I would argue that the conduct of NFCU created, in Goldyn's mind, a belief that the $500 limit no longer applied. If NFCU wanted her to adhere to that limit, they should have bounced checks that took her over that limit. If they later decided that she was too much of a risk, they should have put her on written notice that they were no longer willing to honor overdrafts. NFCU claims to have done so, but could not prove that Goldyn received such notice. Footnote 2 on Page 4 implies that NFCU continued to honor checks past any self-imposed cut-off date. Page 5 tells us that the prosecution misrepresented the elements of the crime, leaving out the critical term of "credit", which NFCU had habitually extended according to the testimony of one of its officers. Page 9 is clear. NFCU blew it by not reining her in on their own.

I'm no friend of deadbeats; I've spent 20+ years in the banking industry on both sides of the desk. NFCU gave this woman a bottomless checkbook and didn't take the time to properly document its decision to change its mind.

Vorn: First, I do like the result, but (perhaps) not the reasoning. Second, please cite the part in the opinion where Kozinski quotes from the credit union's check-guarantee card agreement. I'd really like to see the operative language that ties the credit the bank is extending to the customer rather than the vendor.

David, I don't think the depositor's knowledge of contract law was so broad that she knew that when she wrote checks beyond the limit of her agreement with the bank ($500.00) the bank would probably be obligated to pay the merchant (think of it as unilateral contract to be accepted by taking the check subject to any limits on the card, like Vorn mentioned above).

I'm not trying to argue the bank wasn't incredibly stupid (and I think that a card of this type is just asking to get screwed, but that's not a factor in criminal law). I'm arguing that she intended to defraud the merchants, and ended up defrauding the bank (because of risk allocation) and therefore violated the statute.

Nor am I arguing that this was all worth five life sentences (seriously, for a few hundred bucks? That's just nuts). I am arguing that she violated the statute at the time and that the grant of habeas relief is improper. I would also argue that, assuming this woman has been free since 1999 and hasn't repeated her crimes that some sort of executive commutation of her sentence is in order. Despite the fact that the penalty was incredibly harsh, I think the conviction on these facts was proper (the opinion notes other factors that might mandate relief for other reasons, but doesn't reach those issues because the court decided it on the statutory interpretation issue).

If you understand what a check guarantee card is, lets go over this again.

There was an "arrangement" whereby the "check" would be "paid." Whether or not the customer pays the bank the debt the customer owes, the check has been paid. The check was written to the store, not the bank.

You can say that the check is related to the debt. But you can't say the check was not paid. The check was paid. It was guaranteed to be paid.

It really is that simple.

Definition of credit:Credit = "an arrangement or understanding with a person, firm, corporation, bank or depositary for the payment of a check or other instrument."

(1) There was an arrangement. (The check guarantee card.)
(2) With a depository. (The credit union)
(3) There was a check.
(4) The check WAS paid. (Was in fact, guaranteed to be paid. You stated, and I quote, "Once the depositor writes the check [above $500] she has no a reasonable expectation that the bank will pay." But of course she DOES have a reasonable expectation that the bank will pay. The bank has GUARANTEED it.)

If NFCU had already agreed to honor checks up to a negative balance of $500 why would they even need to issue a guarantee card? I see the card as over and above the advised $500 limit, a position clearly established by the collections officer's testimony.

Vorn: But was the arrangement with the credit union's customer, or with that vendor. That's the issue. It's quite reasonable the the arrangment was with the vendor. Perhaps the credit union wanted vendors to cash the credit union's customers checks without fear. After all, the credit-guarantee card was given to the credit union's customer to make the vendor, not the customer, feel at ease about the checks. Thus, I'll ask you again: Please show me where in the case Judge Kozinski cites the actual language of the credit union's check-guarantee agreement.

You might be right. But until we know for certain what the practice was, your analysis is based on nothing but assumptions.

Vorn, the card represents something to the merchant, not to the depositor.

The depositor's agreement is the one extending credit. The card's existence is independent of that agreement. You can have an overdraft agreement and not one of these cards.

The card represents a promise to the merchant, not to the depositor. You're right that it has no relation to the account as far as that goes, but it certainly relates to the depositor's intent to defraud. Again: there is no requirement that she intend to defraud THE MERCHANT. The intent to defraud the bank is enough.

It's not simply imprisoning someone for a debt. Had she intended to pay the bank, then suddenly lost a ton of money gambling (this is Nevada, after all) and been unable to pay the bank back, then there would be no crime because there would be no intent to defraud.

Ned,

I don't think the officer's testimony is dispositive for reasons already mentioned (intent to defraud the bank). Moreover, I think your ex post analysis doesn't work here. We have to look at her ex ante beliefs. Maybe in some of the later checks she lacked the intent to defraud the merchant, having a firm belief that the bank would pay the check because they had been doing so, (I still think she intended to defraud the bank), but the first check she wrote over the limit, I can't see how she had a reasonable expectation that the bank would pay it absent a sophisticated knowledge of contract law that I doubt she had (and in any event would have *required* an intent to defraud the bank).

"I'd really like to see the operative language that ties the credit the bank is extending to the customer rather than the vendor."

The bank is obviously not extending credit to the vendor. If the bank is doing anything with the vendor, it is honoring a contractual promise on the check-guarantee card. It is not extending credit to the vendor. The vendor will never have to pay anything back to the credit union.

The depositor WILL have to pay the credit union. A debt is incurred. Credit has been extended to the depositor who will have to pay back the debt to the credit union, not the vendor who owes nothing.

No operative language is needed to show that. It is clear from the situation.

You ask:
"But was the arrangement with the credit union's customer, or with that vendor."

This is a false dichotomy. The credit union has more than one relationship/arrangement here.

The credit union has a contractual arrangement with the vendor. A contract was entered into between the credit union and the vendor via the check guarantee card which was shown to the vendor, who, presumably, checked the expiration date and the amount of the guarantee.

An arrangement was made with the customer to give them a check guarantee card. Using the check guarantee card, the customer wrote checks. This arrangement resulted in the credit union paying the check the customer wrote in accordance with the terms on the check guarantee card given to the customer by the credit union. An arrangement was thus made, whereby the depositor would pay the checks written. That a contractual arrangement also exists between the credit union and the vendor does not change this at all.

Vorn: You're obviously a smart guy/gal - and obviously smarter than I am. Dullards like me need to see the actual language of the agreement to know whether there was an actual arrangement between the union and the customer. An agreement saying, e.g., "We will pay any checks you write so long as you present this card" would moot any of my doubts.

Yes, yes, I know, I'm a plodder. But not everyone can be as smart as you and Judge Kozinski. Folks like me work through legal problems really slowly, and always prefer to see the text of governing documents before determing whether there was an agreement.

What do you make of the fact that the Bank had sent a notice to the customer that seems to have terminated the arrangement, and all five of the checks involved in this case were issued after the termination notice had been sent?

Also, I would be interested in your take on how this can satisfy 28 U.S.C. 2254(d)(1), which of course provides the applicable standard of review.

This is why we regulators hate these arrangements. No one, on either side, knows what the terms are. There are no established limits, no written promises to repay, no governing document, no contract. Each and every overdraft check is an ad-hoc decision by the paying bank to roll the dice, collect the $30 (or so) fee, and pray that the depositor somehow makes good.

Lets step back to the statute. (I am stealing your quote, if you don't mind.)

"-a person . . . willfully, with an intent to defraud, draws or passes a check or draft to obtain [money or property] . . . when the person has insufficient money, property or credit with the drawee of the instrument to pay it in full upon its presentation." Nev. Rev. Stat. 205.130(1)

So, the key question is whether the depositor had credit with the drawee. If the depositor had an intent to defraud, that is irrelevant. An intent to defraud only matters when the person has insufficient credit with the drawee. If Bill Gates for some reason thought he had no money left in his checking account and wrote a lot of check intending to defraud people, that would not be a crime.

If the question of whether the depositor had credit with the drawee is answered in the affirmative, case closed.

As I explained earlier, the customer did have credit. The credit union voluntarily and knowingly paid the vendor because of an arrangement made between it and the depositor. But for that arrangement with the depositor, the credit union would not have paid the checks. (Critical elements of the definition of credit are in bold.)

This is an easy case. You seem to think that the fraudulent intent of the customer is relevant. It is not. It is only relevant when there is insufficient credit. But there couldn't have been insufficient credit based on the definition of credit in the Nevada statute. The credit arising from the arrangement between the customer and the credit union was sufficient to pay the check.

In evaluating whether there was sufficient evidence to convict, Kozinski is bound by the evidence heard by the jury. On pages 1251-1252 of the opinion, Kozinski quotes some testimony from the bank's own expert that is dispositive of the entire case. The check guarntee card established a line of credit and the line of credit could be unilaterally extended by the customer by simply writing more checks.

That's it. There's nothing more to discuss. This isn't, really, an issue of statutory interpretation at all. It's a sufficiency issue. The defendant might have committed fraud but she didn't write bad checks. Kozinski is 100% correct.

Now it might be that she intended to write bad checks or that she knew she was over her limit or that she kicks puppies, but all of that is irrelevant. A court's motto ought to be "We enforce the law." not "We punish bad people."

I like bold. =) I especially like BOLD in caps. If only I could make it BLINK!

Orin,

I am going to have to bail out on trying to answer those questions tonight. I brilliantly got myself locked out of my apartment. For the habeas question, I will have to break out my Fallon Federal Courts casebook. (The best casebook ever. Unlike most case books, the Fallon Federal Courts book actually has helpful notes at the end of the cases instead of merely unanswerable questions. Buy it now if you don't own a copy.) I am betting that this habeas question may be the thing that interests you most about this decision. And we all know what interests law professors. Hard questions. Is Kozinski giving the state courts enough deference??

I am not touching that question without doing research. =) Well, of course, I am lying. I am going to touch it as a preliminary matter, but my confidence in these initial thoughts is low.

But you know, I could ask, and this is a question my Federal Courts professor (John Manning) couldn't answer: Would any reasonable person fail to perceive a reasonable doubt that actually existed in a criminal case? (Not exactly the issue here. That question goes to whether Federal courts would have to defer to a state court conviction when they felt there was a reasonable doubt.) The point: the concept of "reasonable" is a slippery one. And it seems that the picture that Kozinski is trying to paint of the state judiciary is that it was unreasonable in this case. But, before I would predict what the Supreme Court would do if it were to review Kozinski's decision and whether he is giving state courts enough deference, I would need to review the relevant precedent.

One puzzle, is that you refer to, and Kozinski in his opinion refers to 28 U.S.C. 2254(d)(1) which involves Federal law. Was Kozinski citing this as the applicable standard of review? I am not sure, he is not explicit about the standard of review. I think maybe a better standard of review for this case might be 28 U.S.C. 2254(d)(2) which refers to "an unreasonable determination of the facts." The question of whether there was sufficient credit or not in this case is one of fact. Of course, the definition of "credit" is one of state law. That is one thing that makes these cases interesting. If the Nevada Supreme Court says that the definition of credit does not include the circumstances here, is that a factual determination or one going to the very definition of "credit" and thus one of law? Of course, a problem with the latter view is that all factual determinations approved by a state's highest court could be thought of as going to the very definition of terms in state law. If you took that approach, wouldn't that render review under 28 U.S.C. 2254(d)(2) meaningless? On the other hand, how can you truly seperate the definitions of terms from their application to particular fact situations?

Those are my initial questions for research tomorrow. If I have time. :)

Mike,

I am not saying anything at all about your intelligence. I am sorry if you interpreted me that way. I just don't think that the particular question you asked need be answered with "governing" textual documents. This may be a conceptual disagreement between me and you about what is needed to establish a particular point. It seems to me clear that an extension of credit did occur and that the only party it could have been extended to was the depositor rather than the vendor. The effect of the relationships established by the written documents which are not quoted in the Kozinski decision seem pretty clear.

Intelligent people can disagree about whether any text from the agreements in question should be included in this particular judicial decision. I would argue that the text of the agreements need not be included due to the clarity of the relationships created here. And I would further argue that any contrary view concerning whether the statutory definition of credit in this case was met is unreasonable. (Unreasonable is not the same as unintelligent, right? A court that overturns a jury verdict as unreasonable is not asserting that the jury was unintelligent. I don't think Kozinski in his opinion is saying that the Nevada Supreme Court is unintelligent, just unreasonable in its review of this particular case.)

Pursuant to the bank's contract with Goldyn, the bank paid the checks. Pursuant to the bank's contract with Goldyn, Goldyn owed the bank money to cover the checks. If a bank pays money out with the expectation of getting it back, that sounds like extending credit to me.

It would be interesting to know the trial dynamics that led to this case being fought hard for more than 18 years. What deals were offered and rejected? Why did the prosecutors push for life sentences on a bad check case (and a weak bad check case at that)?

This case should also make people understand why death penalty cases can take as long as they do. When you fight out every stage of a case, it takes time. And if it takes 18 years for a simple bad check case, you can see whay a far more complicated death case could take longer.

Prof. Kerr, the notice was sent to the defendant but there was no proof she received it.

Jenkins: Kozinski is wrong (though the information may well have been defective as he noted because it failed to charge what she had actually done which was write checks in excess of her credit limit).

Then he wasn't wrong, was he? Because he's concerned with whether what she did fit what she was charged with.

As someone said, the bank's own witnesses sealed this case. It may be like the McDonald's "hot coffee" case in that respect.

And agreed as well that construing the criminal statute narrowly, Kozinski made the right call. The bank obviously did not consult the relevant statutes when drafting this agreement. It happens.

"Prof. Kerr, the notice was sent to the defendant but there was no proof she received it."

Anderson, I can absolutely see this argument if it were being made by a juror. But the jury convicted Goldyn, and we are now on habeas review 15 years later. Don't we now have to accept the version of events that is consistent with the jury's verdict? And isn't that version that the contract was cancelled before the checks were issued?

Isn't the real question whether any reasonable jury could find beyond a reasonable doubt that she received the notice? And given that no receipt was returned even though the bank mailed the notice return receipt requested (footnote 2 of the opinion), it's difficult to argue that the State proved that fact beyond a reasonable doubt.

Here, Judge Kozinski declined to correct a prosecutor's error. The prosecutor charged Goldyn for an offense she did not commit and failed to charge her for an offense she did commit (fraud in opening the account). "Close enough for government work" shouldn't apply to charging the wrong crime.

Don't we now have to accept the version of events that is consistent with the jury's verdict? And isn't that version that the contract was cancelled before the checks were issued?

Looking at p. 1249 of the slip op, it doesn't appear there was a factual basis for that version. "In any event, Goldyn’s account obviously had not yet been closed, as NFCU continued to cover her checks." So the jury couldn't have reasonably found otherwise. (The bank was SO clever, they didn't even sent the letter certified or by some other method that would've provided proof.)

I just don't see a way around the bank's testimony at 1251-52. The bank made a really, really bad arrangement, and they blew it. They shouldn't have promised to cover the checks, but they did.

I'll let the law &econ crowd decide whether the bank had more to gain by honoring the guarantee card (&thus keeping its rep intact w/ area merchants) than by refusing to cover the checks.

I can't see how she had a reasonable expectation that the bank would pay it absent a sophisticated knowledge of contract law that I doubt she had (and in any event would have *required* an intent to defraud the bank).

I can't see how you can reasonably say that she didn't have such a reasonable expectation. The bank said they would. How does it take a "sophisticated knowledge of contract law" to simply believe their promise? That created the expectation. (Not only was the expectation "reasonable," but it was in fact correct.) At most, it takes an understanding of how check guarantee cards work. If the bank dishonored them based on the state of the customer's account, they'd be worthless.

MikeC&F:

Dullards like me need to see the actual language of the agreement to know whether there was an actual arrangement between the union and the customer.

I can understand that you might question what the specific terms of the arrangement were. But how can you question "whether"? Unless she stole the guarantee card, and there's obviously no evidence of that, they voluntarily gave it to her, in exchange for something (opening a certain type of account, presumably). So of course there's an "actual arrangement."

An agreement saying, e.g., "We will pay any checks you write so long as you present this card" would moot any of my doubts.

That's what a check guarantee card is. You're looking at a gift certificate from Borders and saying, "Is there any evidence of an arrangement between the customer and the store that the person could exchange this certificate for merchandise?"

Anderson:

(The bank was SO clever, they didn't even sent the letter certified or by some other method that would've provided proof.)

Except they did. They sent it RRR. And didn't get the return receipt back. Which is evidence she didn't receive it.

"Pursuant to the bank's contract with Goldyn, the bank paid the checks.Where was that contract cited in the opinion? I would really like to read it.

"Pursuant to the bank's contract with Goldyn, Goldyn owed the bank money to cover the checks."

Again, where was this contract. By this logic, if I bounce a check, I have credit with the bank, since I would owe "the bank money to cover the checks." That is, if I keep writing checks, my account balance goes further into the negative. I have a legal obligation to restore that account balance. But that doesn't mean that writing rubber checks is the same as borrowing money from the bank.

By this logic, if I bounce a check, I have credit with the bank, since I would owe "the bank money to cover the checks."

No. When you bounce a check, that necessarily means that the bank doesn't pay it.

That is, if I keep writing checks, my account balance goes further into the negative.

No, it doesn't. It doesn't change, because they aren't paying on the checks. That's what bouncing a check MEANS. (Although they do charge you fees, but charging you a fee isn't loaning you money.)

I have a legal obligation to restore that account balance. But that doesn't mean that writing rubber checks is the same as borrowing money from the bank.

You're simply ignoring the whole part about the bank actualy paying on the checks, pursuant to an agreement to do so. She didn't bounce any checks. The bank paid them, advancing money to third parties on her behalf with the expectation of being repaid. That's credit.

The check guarantee card goes to the benefit of the vendor, not the customer. In any event, for the sake of argument, I willingly concede that there was a contract between the union and the defendant, and that the bank extended credit to the defendant. (I still contend we can't know this without looking at the governing documents, but I'm willing to make this concession.)

The bank sent the customer a notice that the "agreement" was terminated. Obviously, the bank had the authority to unilaterally terminate the arrangement. Thus, even if the woman did not receive the letter, she was still guilty of check fraud because the bank's obligation to pay checks on her behalf was terminated.

But didn't the bank still pay the checks? Yes, but that is not a winning argument. The banks paid the checks (or so a jury could have rationally concluded) not because it owed any contractual duty to the defendant, but because it wanted to maintain good will with the vendors. Had the bank not paid the checks (because, again, it didn't have to since it obviously had the power to unilaterally terminate the agreement), the vendors would not have honored check-guarantee cards from the bank's other customers. So the bank made a rational and self-interested move to honor checks it was not under a duty to honor.

So, to sum it up: The bank did not honor the five checks cashed post-termination letter because it had to honor them; the bank honored those checks to ensure that vendors would not be gun shy when dealing with the credit union's other customers' checks.

The bank sent the customer a notice that the "agreement" was terminated. Obviously, the bank had the authority to unilaterally terminate the arrangement. Thus, even if the woman did not receive the letter, she was still guilty of check fraud because the bank's obligation to pay checks on her behalf was terminated.

"Unilateral" in this context means that the other side doesn't need to agree. It doesn't mean that the other side doesn't even need to know about it. I have the unilateral right to throw you out of my house when I no longer want you there; if you refuse to leave after I tell you to get out, it's trespass. But I can't write down on a piece of paper, "Get out," accidentally misplace the paper, and then have you arrested for trespass.

How can she possibly be guilty of "fraud" -- that's a crime that requires a specific mental intent -- if she didn't have the factual knowledge upon which your conclusion that she had that intent is predicated?

If you can show that she knew that the bank had terminated the agreement, then I agree -- it's a slam dunk. Kozinski's wrong and she's guilty. But Kozinski's argument is predicated on the fact that the evidence showed she didn't know. Which means that, regardless of whether she still had credit with the bank, she (reasonably) believed she did. No knowledge, no intent, no fraud, no crime.

The point which Judge Kozinski makes very clear in his opinion is that while it is entirely possible that a crime was committed, it wasn't the crime charged.

The crime charged was one that makes knowingly writing a check that wouldn't be honored by a bank a crime. The testimony at trial from the bank makes absolutely clear that this didn't happen. The words are well defined under state statutes.

And Kozinski faults the State Supreme Court primarily for not actually considering the legal argument raised on habeas, rather than for considering it and interpreting the law in good faith to find that it doesn't apply. It finds this sloppiness particularly troubling (and hence unreasonable) given the stakes involved. What the state supreme court did isn't materially different from claiming that the transcript in a case said one thing, when it actually said another (the basis of a reversal in another recent U.S. Supreme Court case).

The woman convicted almost certainly committed a crime by applying for a bank account using a false identity, and if the bank did credit checks before issuing check guarantee cards, this crime likely did harm the bank (although we have no idea how severely it did). This would have been a slam dunk. She was a problem gambler with a history of fraud convictions, i.e. "a bad person." She might even have been guilty of theft by incurring a debt from the bank without an intent to repay it (although the facts at trial didn't show that because that was not the issue placed before the trial jury). I wouldn't have been at all surprised if a jury faced with that charge might have convicted her. Given her prior convictions, either crime would probably have resulted in a single life sentence. But, she wan't charged with either crime, and twelve years later, the statute of limitations has run (even if such a prosecution wouldn't have been barred by double jepordary, itself a close issue).

Credit card companies and banks with overdraft protection often allow customers to charge in excess of their stated credit limits and allow them to repay it as a civil matter, and the evidence at trial shows that the bank failed to provide actual notice that the check guarantee was revoked at the time the checks were written, so subjective intent to repay the bank at the time the checks were written would be crucial, indeed constitutionally required under the Nevada Constitution, in a straight case to defraud the bank (this is probably one of the reasons that the prosecutors did not make this case). Exceeding your credit line when you intend to repay the balance is not a crime.

The state screwed up in this case. This is understandable. Prosecutors are not commercial litigators and often don't understand commercial transactions very well. They failed to follow the "pursue every plausible claim theory" that Plaintiff's lawyers in commercial cases often do. And, they didn't read the statute carefully and note that the statute made non-criminal a check backed by credit (this language wasn't even included in the information). But, in our system, when the prosecution screws up, the criminal defendant isn't subject to the punishment that could have been incurred if the prosecution didn't screw up. Even when the criminal defendant is a "bad person".

Well, it's pretty obvious we're going to have to agree to disagree. I'll show you once more why I'm right and then give you the last word.

I win this argument because there was never any evidence that the defendant ever knew that she had credit with the bank. Slow down. I know you think I'm making a mistake, but I know what I'm doing here.

Even if the defendant never knew she lacked credit with the bank, I concede that the prosecution would still have failed if, in fact, she did have credit. So the defendant did not commit check fraud when she wrote how many checks she wrote before the bank sent the termination letter. Now let's move on to the post-termination letter world.

Let's assume (as there is no reason not to assume) that the woman never knew she had credit with the bank. When the bank sent the card-termination letter, the defendant no longer, in fact, had credit.

Since the defendant never knew she had credit, she intended to defraud the creditors. And since she, in fact, did not have credit with the union when she wrote the final five checks, her conduct falls under the statute. Thus, Judge Kozinski was wrong.

If you can show that she knew that the bank had terminated the agreement, then I agree -- it's a slam dunk. Kozinski's wrong and she's guilty.

I disagree. If you can show that she knew that the bank had terminated the agreement, then she's guilty of defauding the bank. But, Kozinski's still right. She ws not charged with defauding the bank. She's still not guilty of violating the Nevada bad check statute because the bad check was honored and the bank felt obligated to honor those bad checks.

Let's assume (as there is no reason not to assume) that the woman never knew she had credit with the bank. When the bank sent the card-termination letter, the defendant no longer, in fact, had credit.

The problem is that this is incorrect factually -- she did in fact continue to have credit, even though the bank's letter might have said otherwise -- and based on a false assumption. The woman did know she had credit with the bank. She held the check guarantee card.

Mike, the problem is simply that you continue to ignore the nature of a check guarantee card. Assuming she hadn't received the letter, when she wrote those checks, she knew for a fact that the checks would be honored. Given that, there are only three possibilities:
1) She thought she had enough money to cover it, in which case the requisite intent to defraud was entirely lacking.
2) She thought the bank was honoring the checks and paying her debts gratuitously, which is too frivolous to entertain.
3) She thought the bank was honoring the checks with the expectation of being paid back. That's credit. Period. And if she knew she had credit, the conduct doesn't fit within the statute.

ohwilleke:

I disagree. If you can show that she knew that the bank had terminated the agreement, then she's guilty of defauding the bank. But, Kozinski's still right. She ws not charged with defauding the bank. She's still not guilty of violating the Nevada bad check statute because the bad check was honored and the bank felt obligated to honor those bad checks.

But in that case, at the time she wrote the checks she would have had no reason to believe that the checks would be honored... oh, alright. Alter the charge to attempt to violate the bad check statute.

And of course, defrauding the bank. (And yes, theft. I'm guessing it wouldn't have been too hard to establish that she didn't have an intent to pay the money back.)

Oh, I see I may have misread MikeC&F's last post slightly. Now he's basing part of his argument on the assumption that she received the letter.

But the evidence said that she didn't. As a law firm, we get (as well as send) plenty of certified mail, RRR letters. I can assure you that our postman always gets a signature when he hands over the letters, and that the little green (or tan) card gets returned to the sender. (And we save the card -- because what's the point of spending the extra postage to get proof of receipt if we're not going to keep it as evidence?) If they couldn't produce that card, then there's definitely reasonable doubt as to whether she received it. In fact, I might go so far as to say that it's unreasonable to conclude that she received it.

I think everyone should go and read the facts. JG opened a checking &savings account. Bank "generously" included a $1000.00 loan, a $500 line of credit attached to her checking account, a credit card and "check guaranty card."

The statute doesn't say anything about whether the customer believes the check will be paid, the issue is whether the customer has enough money, property or credit to cover the check. If the customer does not, it seems irrelevant whether the bank actually pays the check.

The check guarantee seems to me to be an agreement between the bank and the merchant and not something the customer can rely on. Suppose the merchant had waived the guarantee, is there a claim that the customer can force the bank to honor it?

I think it is reasonable for the Nevada Courts to interpret the word "credit" in the statute so as to exclude check guarantee cards.